Q3 2022 Prestige Consumer Healthcare Inc Earnings Call

February 3, 2022

Yeah.

Good morning, everyone and thank you for standing by and welcome to the third quarter 2020 to Christy's in consumer Healthcare, Inc. Earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press. The Star then the one key on your Touchtone telephone.

If you recall this is any time, please press star zero.

I would now like to hand, the conference over to your speaker host built a poorly vice president of Investor Relations Treasury. Please go ahead.

Thanks, operator, and thank you to everyone for joining today on the call with me around Lombardi, our chairman, President and CEO and Christine Sacco our CFO .

On today's call, we're going to review the results of the third quarter of fiscal 2020 to provide an update on our full year outlook and then take questions from analysts.

There is a slide presentation to accompany today's call can be accessed by visiting prestige consumer healthcare dot com clicking on the investors link and then on today's webcast and presentation.

Remember some of the information contained in the presentation. Today include non-GAAP financial measures reconciliations to the nearest GAAP financial measure included in today's earnings release and slide presentation.

On today's call management will make forward looking statements around risks and uncertainties, which are detailed in a complete safe harbor disclosure on page two of the slide presentation that accompanies the call.

These are important to review and contemplate as everyone on the call today is well aware business environment uncertainty remains heightened due to COVID-19 continues to have numerous potential impacts. This means that results could change at any time and the forecasted impact of risks consideration to the best estimate based on information available as of today's date.

Further information concerning risk factors and cautionary statements are available on our most recent SEC filings and most recent company 10-K.

I'll now hand, it over to our CEO Ron Lombardi Ron.

Thanks, Phil let's begin on slide five.

We are very pleased with our Q3 results, which exceeded our expectations.

<unk> continued the strong business momentum we experienced in the first half.

Revenues of $275 million in Q3 grew 15% versus the prior year.

<unk> performance with trends experienced year to date.

Our base business trends remain robust across the majority of our portfolio aided by strong consumer demand and our time tested brand building.

Additionally, the quarter experienced sales and consumption rebounds in certain categories that have been impacted by COVID-19, most notably cough and cold.

This fueled incremental Q3 sales versus our prior expectation discussed in November .

And our international segment also increased double digits to a record quarterly revenues driven by broad based strength for this segment's flagship brand hydraulic.

Solid sales growth continues to translate into strong earnings and free cash flow, we generated about $1 of EPS and free cash flow of about $65 million both up.

Double digits versus prior year.

Lastly, we continue to be disciplined around use of cash generated by the business.

The acquisition of Acorn consumer brands completed earlier in the year continues to perform well and aligned to our expectations.

We finished the quarter at three nine times net leverage ahead of our previous guidance to be below four times by year end.

<unk> further enables future capital allocation optionality.

Now, let's turn to page six for a deeper dive into Q3 performance.

Our solid Q3 sales and profit performance was achieved against a macro backdrop of a new version of COVID-19 during the quarter as well as a dynamic cost and supply chain environment.

This is a testament to the execution of our proven business strategy that continues to allow us to navigate challenges like the successfully.

Three major attributes shown on the page helped enable this during the quarter.

At left.

We have a reminder of the power of our portfolio diversification.

Our brands are trusted by consumers and our wide ranging across categories. This has allowed us to be agile and opportunistic in our marketing opportunities.

A occurred throughout the pandemic.

In the middle of the page is a reminder of the COVID-19 rebound we've experienced.

This broadened out again in Q3 with accelerating cough and cold demand versus prior year.

Furthermore, consumers proactively sought hydration products during Q3, which benefited hydrolyte in Australia.

Finally on the right side of the page is supply chain like others, we are experiencing the headwinds associated with supply chain constraints and inflationary pressures.

Fortunately, we are well positioned to navigate this dynamic environment.

Diversification of our supplier base gives us the agility to adjust to a volatile supply environment, helping to ensure continuity in our supply chain and support growing sales.

So to summarize we are leveraging our portfolio's attributes, including its broad diversification across categories to drive long term growth.

We are experiencing a solid rebound in multiple COVID-19 impacted categories.

And while experiencing macro headwinds, we believe we are well positioned to navigate supply chain challenges now.

Now I'll turn it over to Chris to walk through the financials.

Thanks, Ron Good morning, everyone, let's turn to slide eight and review our third quarter fiscal 'twenty two financial results. As a reminder, the information in today's presentation includes certain non-GAAP information that is reconciled to the closest GAAP measure in our earnings release.

Q3 revenue of $274 $5 million increased 14, 9% and eight 8% on an organic basis versus the prior year.

<unk>, excluding the acquisition of Acorn, which added $13 $7 million in the quarter.

By segment North America revenues were up about 14%.

Nearly all product categories grew with the largest organic increases in Gi and ear and eye care, and especially cough and cold, where we experienced favorable sales trends versus the prior year for both <unk> and Chloraseptic.

The International segment increased approximately 18% in Q3 after excluding the effects of foreign currency.

As Ron highlighted earlier Q3 was a record international performance.

The segment continued to benefit from favorable consumer trends in many of our categories previously impacted by COVID-19, including strong sales for the hydro light brand.

EBITDA increased in Q3, approximately 11% and EBIT margins remained consistent with our long term expectations in the mid <unk>.

Diluted earnings per share for the quarter was <unk> 99.

22% versus the prior year, driven primarily by higher sales and lower interest expense.

Let's turn to slide nine for more detail around consolidated results for the first nine months.

Revenues for the first nine months of fiscal 'twenty, two increased 16% versus the prior year and approximately 12% on an organic basis.

This performance was driven by strength across segments and most brands along with accelerated performance in certain COVID-19 impacted categories, such as travel and cough and cold.

We also continued to experience year over year double digit consumption growth in the E. Commerce channel further building upon the sharply higher online purchasing shifts that occurred throughout fiscal 'twenty one.

Total company adjusted gross margin of 57, 7% year to date was comparable with last year's gross margin of 58, 2%.

We continue to anticipate a full year gross margin of approximately 57%, reflecting supply challenges and cost pressures, we and others are experiencing.

We have instituted pricing actions across our portfolio and we'll continue to do so moving forward as necessary to continue to offset these inflationary headwinds.

Returning to year to date results advertising and marketing came in at 14, 7% for the first nine months similar to the prior year as a percentage of sales and growing in dollars.

For Q4, we would anticipate in A&M rate of approximately 14%.

Adjusted G&A expenses were just over 9% of sales year to date, and we continue to anticipate G&A of around nine 5% of sales for the full year.

Yeah.

Adjusted diluted earnings per share for the first nine months of $3 15.

Grew approximately 29% over the prior year.

Higher sales and lower interest expense drove this growth.

We still anticipate interest to approximate $63 million for the full year as well as an effective tax rate of around 24%.

Now, let's turn to slide 10.

For the first nine months, we generated $193 8 million and free cash flow up about 22% versus the prior year due to the strong operating performance just discussed as well as lower Capex in fiscal 'twenty. Two we continue to maintain industry, leading free cash flow conversion based around our asset light model.

At December 31, our net debt was approximately $1 5 billion and we finished the quarter with a covenant defined leverage ratio of three nine times.

Our strong operating performance and focus on debt reduction have allowed us to achieve a leverage ratio below that of when we acquired Acorn earlier in the year.

We continue to operate with a disciplined capital allocation strategy that prioritizes debt reduction in the near term with that I'll turn it back to Ron.

Thanks, Chris, Let's turn to slide 12 to wrap up and discuss our increased outlook.

Our proven business strategy and diversified portfolio have allowed us to successfully navigate the dynamic market and led to a record fiscal 'twenty two performance thus far.

For the full year, we now anticipate revenues of $1 $75 billion to $1 billion 80. This.

This includes an organic revenue growth expectation of about 9% and we anticipate a continued recovery in certain COVID-19 impacted categories for the remainder of the year.

We are also raising our full year earnings and cash flow outlooks, we now anticipate adjusted EPS of $4 to $4.04.

For fiscal 'twenty two.

Equating to an increase of about 23% to 25% versus the prior year.

We anticipate adjusted free cash flow of $250 million or more as well.

Looking ahead to fiscal 'twenty three.

We expect to face another year of unusual comparisons and quarterly volatility stemming from Covid disruptions as well as Comping, our fiscal 'twenty two record results.

Even with this our business remains well positioned and we expect our business attributes to enable both top and bottom line growth in the upcoming fiscal year.

We look forward to sharing a more detailed full year fiscal 'twenty three outlook in may and remain confident we have the right business attributes and strategy to deliver superior results that reward our stakeholders over the long term.

With that I'll open it up for questions.

Ladies and gentlemen to ask a question at this time you will need to press. The Star then the one key on your Touchtone telephone to withdraw your question press the pound.

Keith.

And our first question coming from the line of <unk> with Oppenheimer. Your line is now open.

Good morning, Thanks for taking my question and congrats on another strong quarter.

So I guess, just Brian just ending.

Talked about the <unk> outlook for next year that you guys expect top and bottom line growth.

No you cannot provide specific guidance at this point, but maybe some more color in terms of a tailwind and headwinds as you look to next year in terms of actually lapping such a strong year.

Yes, good morning.

So just a couple of things first is we provided some.

Outlook for next year, just I think to reinforce the optimism that we have around the business right now the business has a lot of momentum.

And we're really firing on all cylinders. So we wanted to get that point across and as we look into next year, we anticipate growth even stepping off of the record results that we have this year, including an expectation of organic growth.

Okay. Okay.

Okay great.

And then on the capital allocation front.

At least based on our model. It looks like you guys can be even below the lower end of your targeted debt to EBITDA ranges. How do you know if you guys do end up being below that range like how do you guys think about this capital allocation into next year does anything change from a prioritization standpoint, whether it got paid on share buybacks or anything else.

Our capital allocation priorities will remain consistent even if we operate below the three five floor that we've talked about the first is continued delevering.

<unk> would be thoughtful consideration of M&A opportunities as they pop up and third would be opportunistic stock buyback.

If we see opportunities to get good returns for the shareholders by buying stock back so no change in that.

Okay, Great and then just my final question just on the cost backdrop, if you can remind us again.

The magnitude of the headwind that you're facing this year.

And then how your pricing has played out versus your expectations.

Sure with passion warnings, Chris So we talked about about 10 or $15 million of inflationary pressure. This year, that's contemplated in our guide and there is no change to that on today's call.

In November we talked about 30% of the portfolio having taken price.

Kind of the latest update is we've now either taken price we have initiated further pricing actions around the vast majority of our portfolio.

So we remain confident in our ability to offset further pressures with pricing should be an inflationary environment worsens.

Okay, great. Thank you.

Our next question coming from the line of Stephanie Wissink with Jefferies. Your line is open.

Thank you good morning, everyone. Just a follow up on <unk> question on pricing I'm wondering if you can give us some degree.

A magnitude of the price increase youre seeing overall in the OTC category and then how youre pricing compares to that.

Yes, good morning, Chris.

So pricing for us and I think kind of consistent with what we're seeing out there is mid to high single digits in most of our categories for products, where we've had significant cost inflation was worth about a point for us in this quarter.

They will play out obviously, there is a timing factor to how that rolls out.

As we work through the rest of our fiscal 'twenty, two and into next year, but I think that's pretty consistent with what we're seeing out there across the other.

Other brands.

That's very helpful. And then my second question is on the trade inventory levels, just given there's been so much dynamicism in the mix of business and Covid impacted categories, starting to see a recovery.

How are you feeling about the trade inventory how are you feeling about your own inventory and do you anticipate having to recalibrate as we move through the next six to 12 months.

Sure Good morning Steph.

So for starters I think.

We and our retailers with both like to see more inventory.

In place right, there's a lot of peaks and valleys in terms of <unk>.

Land and quickly shifting consumer buying habits that we'd all like to be a little bit better positioned to deal with for example, our performance this quarter.

<unk>.

The outperformance was largely concentrated in the last month of the quarter.

Beyond the crime variance kind of chased shop.

Shoppers into the stores.

So we'd like to see a bit more inventory the retailers would.

And then in terms of.

At shelf for the most part we're in pretty good shape.

Although there are pockets, where we are a bit more challenged in terms of.

Presence at shelf and some stock outs.

The supply chain has been able to keep up with record levels of shipments in the last couple of quarters for us here.

That's great. My last question actually is a two part question on E. Com. Thank you mentioned it was up double digits and you've called out the online shift in 2021, but then Ron your comment just recently that you've seen more of a foot traffic into store can you talk a little bit about E comm penetration where are you.

In that longer term outlook and then as you think about 2022.

Do you expect E comm to donate back to stores or do you expect there to be some.

Neutralizing factor this year that kind of balances out.

Yes, so for fiscal 'twenty, two we continue to see e-commerce growth well above brick and mortar growth.

We would continue to expect that the online E com growth will be above brick and mortars tough.

Tough to predict what consumer shopping habits will be going forward, but clearly the trend seems to be sticking that convenience. The quick delivery of many products that are ordered online and ship to home and then the growing aspect of order and pick up in the parking lot or order online pickup.

As you enter the store so all of those.

Attributes I think is going to continue to help see it grow strong strongly so we're still in the early stages, even though our businesses, we've gone from 15% or $20 million to over $100 million in just a couple a couple of years here.

But it's something we continue to invest behind and worked with our brick and retail brick and mortar retail partners to be successful in their e-commerce initiatives as well.

Thank you very helpful as always.

Thank you Steph.

Our next question coming from the line of Jon Andersen with William Blair. Your line is now open.

Hey, good morning, everybody.

Good morning, John Good morning.

I wanted to start with the just the guidance on the top line.

I think.

It implies a pretty meaningful deceleration in organic growth in the fourth quarter.

And that would be.

The easiest comparison of the year.

And just given kind of the momentum in the business right now and the recovery in some of the Covid category.

Perhaps.

Shipping ahead of consumption the restore.

On shelf.

Stock levels, so trying to understand is there.

Just conservatism baked into that and are there other kind of factors at work that we need to consider.

Hey, John It's Chris Good morning, So a couple of things I guess to consider as Ron just mentioned, we saw a pretty meaningful acceleration in our sales in the month of December .

Obviously, a very dynamic environment.

As we sit here today as a reminder, we took a full year guide up this morning that included a call up for Q4.

Which is essentially reflecting a continued rebound in cough cold.

And we are forecasting continued strong consumer demand across the markets but.

Obviously, we'll learn a lot more as we go but.

In this environment, we thought that was prudent.

Okay.

And then on the <unk>.

Three broad commentary on 'twenty three.

You mentioned, an expectation for organic growth.

On top of the great results in 2022.

Are you thinking about 2023 and kind of.

Long term algorithm kind of growth.

3% I think was how you've talked about.

Topline growth organically over the longer period of time is that the way, we should kind of think about it at a high level.

Yes, I'll stop there.

Yes, we'll provide more detail in may John a little bit early here for us to get into the details for next year.

The quarter that ended December was hard to predict when we're talking in November .

Tough to protect the particulars at this time, but.

Comments were meant to reinforce how we feel good about the business that are underlying categories. Excluding the COVID-19 categories that are certainly getting a tailwind. This year continued to be positioned well for continued organic growth.

If you look into the Q youll see that the vast majority of our categories.

Have grown nicely year to date.

Given the choppy environment, we're in so.

But yes, we would anticipate organic growth on top of the addition of the one quarter of.

Acorn consumer brands that we own.

For all of <unk> 23 versus just three quarters of 'twenty four.

Okay.

And.

Just one more kind of broader question.

The market and consumer behavior.

Are you.

Do you see or perceive.

A more permanent changes.

In consumer behavior, maybe some of it.

He has brought on by longer term factors some brought on by the pandemic.

Im getting at here.

Greater focus.

Prevention.

Preventative type of healthcare measures self care.

Maybe certain categories.

Light weight management or vitamins.

Yes.

What's changed your changing with respect to consumer demand patterns and.

Do you see benefits in your portfolio today as a result of that.

And would any of those changes inform what you might look at from an M&A perspective in the future. Thanks.

Yes.

I think first.

First of all John we've talked about this.

For a very long time, which is why we've been concentrating our efforts in the consumer health care.

Space right.

Is that theres been a long term trend of consumers being more thoughtful of the <unk>.

<unk> wellness and taking care of it.

And during the pandemic I think it's been even more heightened around hygiene for example.

And things that help strengthen the immunity system and cough cold products and that kind of thing so.

We have seen over the last two years the spaces that we compete in are part of that environment and people think about taking care of themselves at home rather than going into the doctor's office. So we will see whether those trends stick long term or whether whether they'll.

Levels of growth will slow over time.

But our diverse portfolio of trusted brands with long heritage.

With consumers I think has us very well positioned for continued long term growth.

No matter.

How the consumer thinks about taking care of themselves over time.

Great. Thanks, a lot thank.

Thank you John .

And our next question coming from the line of Anthony <unk> from Sidoti <unk> Company. Your line is now open.

Yes, hi, good morning, guys and thank you for taking the question so.

In terms of advertising expenses I mean, what are you guys seeing there in terms of just the advertising rates.

I know.

You provided your guidance for.

For the fourth quarter, but just broadly speaking in terms of.

Sure.

Rates across different media channels I mean, what are you seeing there and how do you expect that to play out in fiscal 'twenty three just broadly speaking.

Hey, good morning, Anthony so.

Certainly there is some inflationary pressures around A&M just as there are across so many factors right now, but we get smarter every day.

How we spend our A&M dollars with economy E Comm channel as an example of key learnings.

We're getting more efficient and so we're able to offset a lot of that.

It's not a it's not a.

A big concern within the company when we just think about our overall spend it's certainly there, but I think our efficiencies helping to offset the impact.

Got you, Okay and then.

Yes.

Obviously with the.

Supply chain, there's still some gross margin pressure as far as I mean.

That concern.

Other than price increases are you doing anything else as far as.

You could call out that to try to offset some of those those pressures.

Sure so.

Our operations team is always hard at work with multi year.

Projects for.

Cost savings and that could include retail excuse me co Packer consolidation.

<unk> better rates with our transportation partners in terms of Layne.

Lanes, and who were using partnering with so called a host of things folks are looking at.

Dual sourcing.

Looking at maybe Apis and how they can be sourced more efficiently. So.

No stone will go uncovered but.

Again always have multi year programs in place.

Always focused on it in this environment, obviously, it's it even more so.

Gotcha.

Last thing as far as Capex, So what should we expect for fiscal 'twenty two.

Yes, we guided about $10 million right generally speaking, we talk about pretty modest capital, obviously with our asset light model, 1% to 2% of sales on an annual basis and this year just with timing it will come in at the lower end of the range.

Got it alright, well. Thank you very much best of luck.

Thanks Anthony.

And our next question coming from the line of Linda Weiser with D. A Davidson your line is now open.

Yes, hi.

Could you just highlight.

In the past you had.

Interesting innovations.

Certain points and certain product are there any innovations that you've had in the last year you'd like to highlight and then maybe you could just comment on which products are kind of most strongly gaining share and then maybe ones that you would like even more share gain until occur. Thanks.

Hey, good morning, Linda.

No.

New product and innovation launches are an important thought of how we build our brands and expand.

<unk> and share.

Every year so for fiscal 'twenty two it's been no exception, we've had a number of.

New products and innovation launched across a number of brands.

Clothing, Summer's Eve compound W.

And a number of others. So it's going to continue to play a role going going forward, but.

Nothing that has been a significant contributor to the success this year.

It's just in the base every year.

Consistent contributor.

Any categories that you want to highlight where your share gains are particularly strong.

Sure if you look at across our our portfolio Dramamine even in this.

Disrupted environment and quick.

Recovery has done well and clear eyes.

It's probably been the biggest share gainer.

And biggest success, we've had this year across the portfolio.

I think those are two call out areas.

Okay.

And then.

Just curious on your E Commerce sales I would expect that the vast majority comes.

Through Amazon.

Are you a first party or third party.

<unk>.

Seller on Amazon or.

Or a combination I guess can you just give a little more color on how you go about that business.

Yes, so we're a bit of both.

And what we do is we focus on how to win with the consumer.

What product offering is working best.

Amazon and that will drive whether it's our <unk> focus.

For Us and then.

Obviously, Amazon is the big number for us and the <unk>.

Dollar of growth, but we do still focused on working with the dot com arms of our brick and mortar partners to help them be successful as well and again our strategy is pretty simple, which is b available where the consumer chooses to buy the product and that can be Amazon dot com Walmart dot.

Comp target dot com et cetera, So we're really agnostic in terms of where or through what means the consumer chooses to buy the product.

Okay, great. Thank you very much thank.

Thank you Linda.

Our next question coming from.

Excuse me our next question coming from the line of Richmond, <unk> with <unk> <unk> Company. Your line is open.

Okay.

<unk>.

Most of my questions have been asked but I do have a couple on third tiers first.

I was looking in the.

Statement of cash flows and I saw that the.

The acquisition cash went up about $20 million from Q2 to Q3 I was curious.

What that was.

Hey, good morning, Mitch it's Chris so so during the quarter, we acquired the rights to a very small eye care brand in Australia. It's in the allergy category. It will complement what we have with the with our marine brand in that market.

And it will be folded into Australia, it's pretty similar to <unk>.

Hydrolyte if you recall a couple of years ago, we acquired the rights to some additional Asian markets for the Hydrolyte brand I think it was back in 2019.

It's about $1 million or excuse me not the Hydrolyte brand, but.

This brand, which is called <unk> added and it's about $1 million a quarter. So it's pretty small, but we're looking forward to grow in the future.

Okay.

And then have you.

So you've had a couple of quarters now with.

Third tiers and it's been tracking in line with your expectations, but.

Like you have had.

<unk> had a couple of quarters here to get your arms around it what are you thinking about as you look forward here with <unk>.

Third tiers so are we.

Do you see any any any line extension possibilities is their marketing changes as their packaging changes I was just curious what.

It's going to look like because I imagine, it's going to be a little bit of a driver for you next year.

Yes, Mitch so really all of those things over over time.

We think there is distribution gain opportunities, we think theres product extension opportunities.

New products and innovation.

Maybe we'll even get to updating the packaging over time.

Even though we've had it for seven months or so now we are still in the very early stages of it.

We just recently launched an additional new product.

Xtra.

Unit dose that that will be out at shelf.

Now that you can find so.

We continue to be very optimistic about the long term growth opportunities for that brand.

And look forward to growing it over the long term.

Okay. That's all I have for you. Thank you very much.

Thank you Mitch.

Our next question coming from the line of Carla Casella with Jpmorgan. Your line is open.

Hi, good morning, and thanks for taking our question you guys mentioned an improvement in the cold and flu kind of driving some of the results. This quarter I was curious how that stacks up versus 2019 are pre COVID-19 .

And the second part of that question is that given the rebound in that category. Specifically have you guys seen any sort of changes in that promotional environment.

Yes.

Okay. So for starters, we anticipate our sales for this year for for our cough cold products to still be below the 2019 and 2020 this fiscal year.

At this point.

As a reminder, the first six plus months of our fiscal year, we're still fairly slow for those categories. We saw significant rebound largely beginning in December for US, we'll see how the rest of the year plays out it looks like it's going to continue at least through this quarter for us.

Then for next year, it's hard to predict what level of incidences.

The season will start with and then what that will ultimately.

End up being in terms of a driver for both retailer orders and consumer takeaway at shelf. So still lots that's hard to predict about not only this quarter, but next year as well but.

<unk>.

That helped the growth this year and just a reminder, cough cold, but about seven or 8% of our sales.

Great. Thank you.

Second number question, because I think a couple of them have been answered so far is.

Kind of called out Australia.

It's driving a lot of the international results can you kind of talk about where that market stands in Europe and then also relative to prepay and then are we back to fall a little bit below as well Im just kind of curious there not sure different mark. Thank you yes.

Yes, sure so not quite back to pre pandemic levels.

A big part of our business in the International segment is Hydrolyte hydration brand.

Which benefited this quarter from increased cough cold just as we did here in the U S.

Incidences of flu.

Vaccination rates were up it drove consumers back out it's always hard to predict the timing of orders in our international segment, because it's a distributor model excuse me, but as we sit here today we.

So we are anticipating a pretty strong Q4 above our long term growth expectations, which is about 5% growth in our international segment, but just given the continued momentum. We think Q4 is likely to come in a bit stronger than that 5% as well.

Great. Thank you.

And our next question coming from the line of William Reuter with Bank.

Of America Your line is open.

Good morning.

I have two so the first is you mentioned that your supply chain has done pretty well fared.

Sure.

Given all the challenges are there any input to some of your products that you have your eye on that you are concerned that potentially could be unavailable and could disrupt some of the availability of products to your customers.

Hey, good morning.

The short answer is not really as a reminder, we're starting with the benefit of our diverse brand portfolio and that also helps to diversify our cost components.

We have a number of.

Suppliers and pretty broad based co manufacturing partners. So no at this time, we're not we're not focused on one particular thing that would be material to the company.

Good to hear and then.

You guys went through your.

The ranking of capital allocation you also mentioned in the prepared remarks.

Additional optionality based upon leverage being a little bit lower than you had expected it to be at this point I guess what are you seeing in terms of valuations do you think that it's a relatively attractive market or do you think valuations are a little rich.

Yes.

So.

So for starters.

When we evaluate M&A, that's certainly an important.

Consideration valuation, but long term brand building in the ability to get appropriate returns on the capital is very much where we start.

<unk>.

Our multiple is kind of a math exercise its really about what we think we can do with with the brand over the long term to create value in terms of the current environment certainly theres a lot of headline news about super rich multiples.

For example, GSK turning down 20 times EBITDA.

From Unilever.

As an indication that valuations are really super rich for us we tend to be.

Competing against P/e, and other and other buyers, who don't necessarily get the synergies or have a cost of capital that we have that allows us to be competitive out there. So for example, with <unk> tears.

We saw valuation of around 10 ish or so so for the things that we're competing for we don't see.

Super High multiples that Youre seeing in the press.

Great very helpful.

The others. Thank you.

Thank you.

And Im showing no further questions at this time I would now like to turn the call back over to Mr. Lombardi for any closing remarks.

Thank you operator, and thanks to everyone for joining us today, and we look forward to connecting again in May we'll give an update on fiscal 'twenty three and the finish to fiscal 'twenty, two and have a great day.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.

Yeah.

Got it.

[music].

All right.

[music].

Yeah.

[music].

Yes.

Okay.

[music].

Yes.

Okay.

[music].

Yes.

Okay.

Yes.

Sure.

Okay.

[music].

Okay.

Yes.

[music].

Okay.

Sure.

Okay.

Right.

[music].

Sure.

Okay.

[music].

Okay.

Yes.

[music].

Yes.

[music].

All right.

[music].

Yes.

[music].

Okay.

[music].

Okay.

[music].

Okay.

Yes.

Thank you.

No.

Okay.

Thank you.

Sure.

Okay.

[music].

Yes.

Okay.

Yes.

Okay.

Yes.

[music].

Good morning, everyone. Thank you for standing by and welcome to the third quarter 2022 christy's in Summa Health Care, Inc. Earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session. That's a question during the session you will need to cross the Star then the one key on you touched on telephone.

If you recall offers isn't any time. Please press star then zero.

I would now like to hand, the conference over just to go home built up all Healy Vice President of Investor Relations Treasury. Please go ahead.

Thanks, operator, and thank you to everyone for joining today.

Called me, Ron Lombardi, our chairman, President and CEO and Christine Sacco our CFO .

On today's call, we're going to review the results of the third quarter of fiscal 2020 to provide an update on our full year outlook and then take questions from analysts.

There's a slide presentation to accompany today's call can be accessed by visiting prestige consumer healthcare dot com clicking on the investors link and then on today's webcast and presentation.

Remember some of the information contained in the presentation today include non-GAAP financial measures.

Reconciliations to the nearest GAAP financial measure included in today's earnings release and slide presentation.

Means that results could change at any time and the forecasted impact of risks consideration to the best estimate based on information available as of today's date.

Further information concerning risk factors and cautionary statements are available in our most recent SEC filings and most recent company 10-K.

I'll now hand, it over to our CEO , Ron the body rock.

Thanks, Phil let's begin on slide five.

We are very pleased with our Q3 results, which exceeded our expectations.

<unk> continued the strong business momentum we experienced in the first half.

Revenues of $275 million in Q3 grew 15% versus the prior year.

<unk> performance with trends experienced year to date.

Our base business trends remain robust across the majority of our portfolio aided by strong consumer demand and our time tested brand building.

Additionally, the quarter experienced sales and consumption rebounds in certain categories that have been impacted by COVID-19, most notably cough and cold.

This fueled incremental Q3 sales versus our prior expectation discussed in November .

And our international segment also increased double digits to a record quarterly revenues driven by broad based strength for this segment's flagship brand hydro right.

Solid sales growth continues to translate into strong earnings and free cash flow, we generated about $1 of EPS and free cash flow of about $65 million.

Both up double digits versus prior year.

Lastly, we continue to be disciplined around use of cash generated by the business the.

The acquisition of Acorn consumer brands completed earlier in the year continues to perform well and aligned to our expectations.

Finished the quarter at three nine times net leverage ahead of our previous guidance to be below four times by year end.

<unk> further enables future capital allocation optionality.

Now, let's turn to page six for a deeper dive into Q3 performance.

Our solid Q3 sales and profit performance was achieved against a macro backdrop of a new variant of COVID-19 during the quarter as well as a dynamic cost and supply chain environment.

This is a testament to the execution of our proven business strategy that continues to allow us to navigate challenges like these successfully.

Three major attributes shown on the page help enable this during the quarter.

At left.

We have a reminder of the power of our portfolio diversification.

Brands are trusted by consumers and our wide ranging across categories. This has allowed us to be agile and opportunistic around marketing opportunities as they have occurred throughout the pandemic.